China to defend rare earth exports cut at WTO

The world two largest economies are to clash at the World trade Organization. The US has launched a case against China within the WTO over Beijing’s restriction on the export of rare earth minerals.

The European Union and Japan have joined the suit.

Washington believes China deliberately curbs export of rare earths to artificially inflate prices. The minerals are used in the manufacture of many high-tech tools like hybrid car batteries, flat-screen TV-sets and electronic weaponry. This is a direct violation of China’s obligations within the WTO. Beijing insists the restriction was introduced to decrease threat to the environment and to avoid rapid depletion of the material.

There is certainly a lot to fight for. While the Obama administration seeks a level playing field for US companies by urging China to normalize exports, Beijing is keen to keep its stranglehold on the minerals. China holds 97 percent of the global rare earths market, and providing cheaper materials to home-grown producers gives a tremendous boost to the country’s domestic economy.

It is understood that after the US, Japan and EU officially bring their case to the WTO; negotiations will begin between the organization and Beijing. Should the WTO decide in Washington’s favour and Beijing refuse to lift the restrictions, the organization could penalize China with fines and even certain sanctions. Such a scenario has already made some experts worry about the future of US-China trade ties. Especially after a commentary by the Xinhua state news agency which gave a clear hint that Beijing will defend the nation's rare-earth industry.

"In face of such unreasonable and unfair charges, China will make no hesitation in defending its legitimate rights in trade disputes. Past experiences have shown that policymakers in Washington should treat such issues with more prudence, because maintaining sound China-U.S. trade relations is in the fundamental interests of both sides" – it said.

China's Foreign Ministry was more reserved, saying through its spokesman Liu Weimin that the U.S. allegations were "groundless" and that its export restrictions on rare earths were aimed at making the industry more environmentally safe and economically sustainable.

Despite this trade conflict seemingly escalating, UBS analyst Kirill Сhuiko believes it would not grow into a full-scale trade war. He says despite that trade relations between Washington and Beijing have not always been smooth; this latest row would hardly destabilize one of the biggest economic partnerships in the world.

“Recently, the US and Canada imposed a 90 percent import tax on Chinese pipes – afraid Chinese-made pipes would flood the North American market. This certainly strained the trade ties. But still – the US and China have very strong and profitable trade ties. And should the WTO decide to impose sanctions or fines against China, Beijing will most likely give in as it gains tremendous economic benefits from the WTO”.

It is not the first time this issue of China’s rare earths policy finds itself in the spotlight. In 2009 the US and EU lodged a similar complaint at the WTO, which supported the claim. It saw little reason in China’s motivation for placing the restrictions, saying as long as the country doesn’t limit its domestic research and processing of rare earths, an excuse of avoiding their depletion could hardly be considered serious. This past experience – many say – would most likely turn the WTO against China in the latest twist of the rare earth minerals saga.